FTSE up on hope that Bank will keep rates low - London Report

Britain’s top share index yesterday climbed to a five-month high on expectations that the Bank of England would keep interest rates down, after data showed inflation sank to a record low in January.

The annual inflation rate fell to 0.3 per cent last month from 0.5 per cent in December, official data showed, largely reflecting a sharp drop in oil and food prices.

“The combination of low inflation, rising wages and falling fuel prices are great news for the UK consumer,” said Ben Brettell, a senior economist at Hargreaves Lansdown.

“I believe [interest rates] will stay lower for longer then the majority of forecasters expect.”

The blue chip FTSE 100 index was up 0.6 per cent, or 41.08 points, at 6,898.13 points at the close, its highest since early September.

Consumer staple stocks, which popular defensive plays and have substantial exposure to the rest of the world, added 19 points to the index.

Diageo, the world’s biggest drinks maker, added 2.5 per cent to 1,885.50p, Imperial Tobacco rose 2.2 per cent to 3,063p and Unilever was 1.89 per cent better at 2,801p.

But as crude prices slipped again – Brent is currently down 0.57 per cent at $61.05 a barrel – Tullow Oil fell 3.36 per cent to 406.10p.

Royal Mail lost 2.32 per cent to 437.60p after Morgan Stanley cut its target price from 350p to 340p with an underweight rating.

InterContinental Hotels was 1.66 per cent lower at 2,545p despite a 10 per cent rise in full-year profits, with some disappointment that there was no new share buyback announcement.

The stock had risen almost 30 per cent over the past 12 months until Monday’s close, against about a three per cent rise for the FTSE 100.

Outside the 100-share index, shares in specialist insurer and reinsurer Brit jumped 11 per cent to 305p after Canada’s Fairfax Financial Holdings said it would buy the company for $2.3bn Canadian dollars (£1.2bn).

Investors remained cautious after debt talks between Greece and Eurozone finance ministers broke down, putting pressure on Greek shares and on the broader European stock market. “Another breakdown in communication, another nearly signed agreement, and another day with the Greek debt crisis unresolved,” said Spreadex financial analyst Connor Campbell.